Understanding insolvency and weighing your options moving forward
Running a business successfully requires keeping a good handle on a seemingly staggering number of moving pieces. At any given time, you might be juggling dozens of accounts payable and receivable. With all of this cash flow moving in and out of your company coffers at all times, it can be difficult to have a clear picture of your organisation's financial health.
The reality is that sometimes, money matters are not going well, and it's important for your business to identify that problem early and weigh your options for addressing it. If you don't have the money to continually meet all the debts your company is facing, it's quite possible that you're headed for insolvency.
It's important to know what that means and how to handle it. When money gets tight, you've got to handle the issue delicately.
Explaining how insolvency works
Cash flow can get a little bit hectic when you're running a business, even a relatively small one with few clients. There are always so many payments up in the air. Credit card debt accrues, invoices pile up, mortgages must be paid and so on. When you struggle to make a payment for a week or two, it can be difficult to figure out – are you actually having money trouble, or is the problem simply one of temporary cash flow disruption?
According to the Australian Restructuring Insolvency and Turnaround Association, there are certain warning signs to look out for when managing your company's finances. For example, if you can't pay the mortgage on your facility, or if you're having trouble paying people their salaries on a timely basis, these are real issues that might mean the long-term health of your business in trouble.
In other words, these are telltale signs of impending insolvency. If the debts are piling up and you simply can't pay them all, this likely means you have a real problem to address.
What you can do right away
If it appears that your business is becoming insolvent, it's important to address the problem quickly. Think about your creditors and how best to manage your debts with them. Which relationships are most important to you? Which debts, therefore, need to be paid first? Identify your top priorities and map out a plan of attack that addresses them first.
The way out of insolvency is to write a sophisticated plan and stick to it. You may be having money problems today, but how much progress can you make in the next 30 days? What about 60? Set tangible goals and work steadily toward achieving them.
Recovering from a long-term state of insolvency is not easy, but it can be done with careful planning and fiscal responsibility.
The value of catching the problem early
If your business is falling into serious debt and may have trouble climbing out, it's good to be proactive and identify the problem early. Being quick to notice your mounting debt problem can help you stay ahead of your insolvency issues and make sure the situation gets better before it gets worse. If you see the warning signs, don't be afraid to take action.
This action may well include getting in touch with a business partner like Corporate Lifeline that can help. At Corporate Lifeline, we understand that admitting you have a problem can be difficult, but we're here to be sensitive to your situation and help you work out a responsible course of action. Whether the next step is simply a small cash flow adjustment or a major move like a company restructure, we're here to help you figure it out and move forward with confidence.